PUBLIC STATE OF MAINE PUBLIC UTILITIES COMMISSION Docket No. 2016-00084 January 25, 2017 MAINE PUBLIC UTILITIES COMMISSION Procurement of Biomass Resources ORDER APPROVING BIOMASS PROCUREMENT CONTRACTS (PART TWO) VANNOY, Chairman; McLEAN and WILLIAMSON, Commissioners ______________________________________________________________________________ I. SUMMARY The Commission approves the proposed Biomass Generated Energy Purchase and Sale Agreement of Stored Solar LLC and the combined ReEnergy Ashland LLC and ReEnergy Fort Fairfield LLC (collectively, Agreements). Through this Part Two Order, the Commission provides the background, analyses, and reasoning for the Commission’s decision in this proceeding approving the Agreements, subject to any changes necessary to conform the Agreements with the Commission’s decision, as well as any non-substantive changes necessary to finalize the Agreements. 1 II. BACKGROUND A. An Act to Establish a Process for the Procurement of Biomass Resources During its 2016 session, the Legislature enacted an Act to Establish a Process for the Procurement of Biomass Resources (Act). P.L. 2016, Ch. 483. The Act directed the Commission to initiate a competitive solicitation for one or more 2-year contracts for up to 80 megawatts of biomass resources. 2 The Act requires that all of the abovemarket costs associated with these contracts would be paid from a “Cost Recovery Fund” (the Fund) which was created to receive funds allocated or transferred by the Legislature from the unappropriated surplus of the General Fund in accordance with the Act. The Legislature has transferred $13.4 million out of the General Fund into the Fund. 1 The Commission’s decision was set forth in a Part One Order issued on December 19, 2016. 2 The Act defines biomass resources as “a source of electrical generation fueled by wood, wood waste or landfill gas that produces energy that may be physically delivered to the ISO-NE region, as defined in the Maine Revised Statutes, Title 35-A, section 1902, subsection 3, or in the NMISA region.” Order Approving . . . - 2 Docket No. 2016-00084 The Act specifies that the Commission may direct utilities to enter into contracts for up to 80 MW, that a contract may be a contract for energy or a contract for differences, and that the inclusion of capacity and renewable energy attributes (along with energy) is optional. The Act further specifies that all contracts must be contingent on the availability of funds in the Fund and that contracts must be suspended if there are insufficient funds and may be reinstated if sufficient funds become available. In addition, the Act explicitly states that “[n]o more than 50% of the fund may be awarded to facilities serving the NMISA region.” 3,4 The Act also requires that, during the solicitation and contract approval process, the Commission shall: A. Ensure that a biomass resource facility is operating at least at a 50% capacity for 60 days prior to the initiation of [the] competitive solicitation . . . and continues to operate at that capacity except for planned and forced outages; and B. Seek to ensure, to the maximum extent possible, that a contract entered into under this section: (1) Provides benefits to ratepayers; (2) Provides in-state benefits, such as capital investments to improve long-term viability of the facility, permanent direct jobs, payments to municipalities, payments for fuel harvested in the State, payment for in-state resource access, in-state purchases of goods and services and construction-related jobs and purchases; (3) Reduces greenhouse gas emissions; (4) Promotes fuel diversity; and (5) Supports or improves grid reliability. In selecting among bids, the Act requires that the Commission identify those proposals that maximize the overall benefits to the State by determining the total in3 The “NMISA region” is defined in the Act to mean “the area administered by the independent system administrator for northern Maine or any successor of the independent system administrator for northern Maine.” 4 While the Commission has experience and some expertise in assessing cost effectiveness of procurements such as this, this directive was unusual insofar as it relies on general fund monies to pay for above-market outcomes and contains a fairly extreme set of solicitation requirements based on economic development considerations – both of these components make this unique. Order Apgroving . . . - 3 Docket No. 2016-00084 state economic benefits of the contract in an expected annual dollar per megawatt-hour average and the cost to fund the above-market costs of a contract in an expected annual dollar per megawatt-hour average. The Act also directs the Commission to establish a process under which a generator of biomass resources verifies on an annual basis that the projected in-state economic benefits have been provided. In the event the Commission concludes that the solicitation is not competitive, the Act specifies that no bidders may be selected. Finally, if the Commission finds the in- state benefits are not being achieved, the Commission may reduce the contract payment by the percentage difference between actual in-state benefits achieved and the projected in-state benefits. On May 17, 2016, the Commission issued a Request for Comments seeking input on the standards and criteria to be used to determine whether the solicitation is not competitive. Comments were received by several interested persons on May 30, 2016. B. Proposal Solicitation On June 17, 2016, the Commission issued a Request for Proposals for the Sale of Energy from Biomass Resources (RFP) pursuant to section 2 of the Act. The RFP sought proposals from biomass resources for the sale of energy to either Central Maine Power Company (CMP) or Emera Maine (Emera) (collectively, utilities) under a two-year contract. As permitted by the Act, the RFP specified that proposals could be for a contract for energy or a contract for differences. Bidders were also allowed to offer to sell capacity and/or renewable energy attributes as part of the contract. Pursuant to the RFP, proposals were due on or before July 29, 2016. The Commission received multiple timely submissions. Subsequent to the submission of the bids, Commission Staff and the utilities engaged in discussions with each of the bidders regarding the final terms of the proposed contract. The Commission received the following proposals: Order Approvinq . . . - 4 Docket No. 2016-00084 [End Confidential] 4. ReEnergy submitted a proposal for a contract for differences for energy from its biomass facilities in Ashland and Fort Fair?eld, Maine with a pro osed contract rice of $46.50 er Be in 5. Stored Solar submitted an alternative structure for a contract for differences for generation from both its biomass facilities in West Enfield and Jonesboro, Maine that proposed a fixed amount of $13.40 per which it would receive as an adder to wholesale market rices.6 Be in Confidential 6. Be in Confidential ELIGIBILITY A. Issue When selecting among bidders participating in the solicitation process, the Act requires the Commission to: Ensure that a biomass resource facility is operating at least at 50% capacity for 60 days prior to the initiation of a competitive solicitation . . . and continues to operate at that capacity except for planned and forced Sraegm Con?dentiau? [End Confidential] 6 When Stored Solar submitted its proposals it was in negotiations to purchase the West Enfield and Jonesboro facilities from its then owner, Covanta. Stored Solar and Covanta finalized this transaction shortly thereafter. Order Approving . . . - 5 Docket No. 2016-00084 outages . . . . The RFP required proposals to demonstrate “that the facility has been operating at 50% capacity or greater for 60 days prior to the date of [the] RFP.” In their proposals, most bidders, including ReEnergy, demonstrated that their facilities operated at this capacity by, for example, providing NEPOOL GIS reports. However, Stored Solar indicated that its two facilities at West Enfield and Jonesboro (collectively, the Stored Solar Facilities) were not operating as of the time its proposals were submitted. According to Stored Solar, the Jonesboro facility originally shut down in March 2016 due to a waterwall failure and the West Enfield stopped operating in April 2016 in accordance with a scheduled boiler outage. The Stored Solar Facilities had not resumed operations in part due to an analysis to identify necessary repair and improvements associated with their recent sale of the facilities to Stored Solar. Stored Solar has also represented that restart of these facilities is contingent on contracts awarded pursuant to the Act. 7 On August 19, 2016, Commission Staff requested that Stored Solar provide its legal analysis regarding the eligibility issue, given the provision requiring that a biomass resource facility is operating at least at a 50% capacity for 60 days prior to the initiation of a competitive solicitation pursuant to the Act. Stored Solar responded to this request on August 31, 2016. B. Stored Solar Response In its response, Stored Solar argues first that the requirement that facilities operate at fifty percent capacity prior to the RFP date is subject to the exception for forced and planned outages. According to the Company, a plain meaning interpretation of the Act applies this exception to both time periods before and after the initiation of competitive solicitation. If the Legislature intended to restrict the exception to only one time period it would have used additional words, grammar, or syntax to do so. In addition, Stored Solar cites legislative intent and history to provide further support for its position. Given that the intent of the Act is to support the Maine biomass industry, and there are six biomass energy facilities owned by two companies located in the State, an interpretation that eliminated two of the six facilities would be an “absurd, illogical, and inconsistent result.” Further, early language that was not included in the final version of the Act set a deadline to finalize contracts by September 1, 2016, and the Act became law in April, a shoulder month in which biomass energy facilities typically schedule outages for repairs. Stored Solar contends that the clear urgency of the Legislature to finalize contracts promptly, combined with the timing of the enactment of the legislation in a shoulder month, indicates that the Legislature intended the forced and planned outages exception to apply during the 60 days prior to the initiation of competitive solicitation. 7 Stored Solar Response to PUC Questions, p. 5 (Aug. 26, 2016). Order Approving . . . - 6 Docket No. 2016-00084 Based on this interpretation of the legislation, Stored Solar contends that the period of time during which its facilities were not operating was a forced outage, as that term is defined by ISO-NE in its Operating Procedure No. 5. In support of this point, Stored Solar provides a screenshot of the ISO-NE’s control room operations window outage database, classifying both facilities as in forced outage. Stored Solar asserts that the use of ISO-NE’s classification of forced and planned outage is appropriate in this context because no definition of these terms is provided by Maine law. Finally, Stored Solar argues that the outages of the Facilities fall under the plain meaning of planned and forced outages. According to Stored Solar, the outage due to a waterwall failure at Jonesboro was a forced outage and the scheduled outage of the West Enfield facility was a planned outage. C. Decision For reasons similar to those articulated in Stored Solar’s legal analysis, the Commission finds that the Stored Solar Facilities meet the statutory requirement for operations during the sixty days prior to the RFP in that the forced and/or scheduled outage exceptions apply. Statutes must be construed so as to give effect to intent of the Legislature, which is found in that statute’s plain meaning, avoiding absurd, illogical or inconsistent results. Jordan v Sears, Roebuck & Co., 651 A. 2d 358, 360 (Me. 1994). The plain meaning of the section of the statute at issue is also interpreted in harmony with the whole statutory scheme applicable to that section. Freeman v. NewPage Corp., 135 A.3d 340, 342 (Me. 2016). If the plain meaning cannot be determined and the language is ambiguous, other indicia of legislative intent is examined, such as legislative history. Sunshine v. Brett, 106 A.3d 1123, 1128 (Me. 2014). In accordance with the plain language of the statute, legislative intent was to allow for forced and planned outages both before and after the RFP. To interpret otherwise would lead to absurd, illogical, or inconsistent results. As a matter of logic, with respect to the 50% capacity requirement, forced and planned outages would be no less relevant in the sixty days prior to the RFP as they would be thereafter. Thus, it would be inconsistent to allow a forced or planned outage for one period of time and not the other. As explained by the U.S. Supreme Court, in statutory construction, “‘When several words are followed by a clause which is applicable as much to the first and other words as to the last, the natural construction of the language demands that the clause be read as applicable to all.’” Paroline v. United States, 134 S.Ct. 1710, 1721 (2014) (quoting Porto Rico Railway, Light & Power Co. v. Mor, 253 U.S. 345, 348 (1920)). In addition, the Act requires the Commission to initiate a “competitive solicitation” for biomass resources and to maximize the overall benefits to the state to determine which bidders are awarded contracts. As indicated by Stored Solar, the pool of eligible Order Approving . . . - 7 Docket No. 2016-00084 bidders is limited, especially within Maine. The Commission would be handcuffed in its ability to carry out its responsibilities under the Act if it were unable to consider two of Maine’s major biomass resources. Such a result would be absurd, especially given the obvious goal of the Act to support the biomass industry. Although not applicable under a plain meaning interpretation of the statute, legislative history provides further support for the position that the Act was drafted with the intent to include the Stored Solar Facilities. Arguments from Legislators concerning the Act made repeated mention of the goal to support the six standalone biomass plants, two of which are the Stored Solar Facilities. 8 In addition, the Legislators were also clearly aware that the Stored Solar Facilities were in the process of discontinuing operations. 9 As explained by Representative Alley: [The] biomass industry is important to Maine. This is a homegrown, renewable energy. The money and the jobs associated with the biomass stay right here in Maine; they don't go out of state. The industry is in trouble, however. There are six standalone biomass plants in Maine, but two are about to close and the other four are at risk. Leg. Rec. H-1711 (2016). It would be contradictory and illogical for the Legislature to knowingly eliminate from consideration one-third of the very facilities it intended to support. While neither the Act nor other provisions of Chapter 35-A provide guidance as to what constitutes a forced or planned outage, the classification by ISO-NE demonstrate that the outages of the Stored Solar Facilities were forced. As capacity resources participating in the ISO-NE market, the Stored Solar Facilities are subject to the ISO New England Operating Procedure No. 5 (OP-5), which sets forth the standards for scheduling the outages of capacity resources. OP-5 defines planned outage (PO), maintenance outage (MO), and forced outage (FO). Forced outage is defined as: Any outage or inability, in whole or in part, of a Generator . . . to provide its Claimed Capability . . . that has not been approved by ISO in the form of a PO or MO. An FO incident preceding a PO or MO shall not eliminate the requirement of the Market Participant to report an FO for the entire actual/estimated period to repair the component(s) associated with the FO. Among other things, an FO may occur by reason of an Emergency or 8 In arguing against the Act, Representative O’Connor states “the problem it seeks to address, rescuing our six remaining biomass plants from their eminent [sic] passage and perhaps keeping our loggers working, will very likely not come to fruition through this bill.” Leg. Rec. H-1713 (2016). 9 Rep. Higgins, for example, explained that “we have two plants that are closed—two— or will be shortly. One in Jonesboro or Washington and Hancock County and the region as a whole, one in West Enfield, serves Piscataquis County, Penobscot county, part of Washington County as well.” Leg. Rec. H-1714 (2016). Order Approving . . . - 8 Docket No. 2016-00084 threatened Emergency, unanticipated failure, or other cause beyond the control of the owner or operator of the facility, as specified in the relevant portions of the Market Rule 1 and ISO New England Manuals. An FO requires the notification of the ISO Control Room Generation Desk with an appropriate Redeclaration for the current Operating Day. The ISO Generation Coordinator should be contacted . . . for the purpose of providing an expected FO return date, and to provide any necessary Redeclaration of any future days for which the bidding deadline has passed. These notifications should be made as soon as practicable. In accordance with this definition, control room operations window outage database classified both of the Stored Solar Facilities as under a forced outage during the relevant time period. In the absence of an alternative statutory definition for forced or planned outages, the classification provided by ISO-NE is persuasive. Therefore, the Stored Solar Facilities have met the fifty percent capacity operating requirement of the Act because those facilities have been under a forced outage during the applicable time period. IV. SELECTION OF CONTRACTS A. Standard of Review The Act provides standards for the Commission to follow in selecting among the bidders that respond to the RFP. First, for all proposed contracts, the Commission must determine the total in-state benefits and the total above-market costs to be paid from the fund, each on an annual dollar per megawatt-hour average. Then, the Commission must consider these values to select the contracts that maximize the overall benefits to Maine. The following sections describe the analytical approach used by the Commission to make these determinations.10 B. Above-Market Costs and ln-State Benefits As noted above, the Act requires the Commission to consider the above-market costs and in-state economic benefits of each proposal. This section explains the methodology used to determine above?market costs and in-state benefits. i. Above-Market Costs For contracts involving a physical transaction, above-market costs were measured by the difference between the estimated cost of the contract and the value 1" Be in Confidential Order Approving . . . - 9 Docket No. 2016-00084 that would be received for the energy in the wholesale market. For contracts involving a financial transaction, above-market costs were measured by the estimated cost of the contract, which may or may not be a function of wholesale energy prices, depending on the structure of the prices. The above-market costs were estimated over the two year contract term. To the extent applicable, for each month of the contract term, peak and off-peak wholesale energy prices were estimated using futures pricing on the NYMEX exchange. Off-peak prices were estimated using the ISO New England Mass Hub DayAhead Off-Peak Calendar-Month 5 MW Futures (H2) product, and peak prices were estimated using the ISO New England Mass Hub 5 MW Peak Calendar-Month DayAhead LMP Futures (U6) product. The Commission used H2 and U6 December 6, 2016 closing prices as published by the Chicago Mercantile Exchange. Monthly peak and off-peak prices were weighted by the actual number of peak and off-peak hours in each month as defined by ISO-NE to calculate a weighted average price for each calendar month. The monthly weighted average prices were then adjusted to reflect estimated LMP at the delivery node specified in each proposal rather than at the Mass Hub. The delivery node adjustments were determined based on actual LMP data for the 14-month period July 1, 2015 through August 31, 2016. Above-market costs reflected the expected output of each proposal as indicated by the bidder. Finally, contracts were assumed to start on January 1, 2017, unless the proposal specified a later date. ii. In-State Benefits Pursuant to the Act, in-state benefits include items such as capital investments to improve long-term viability of a biomass facility, permanent direct jobs, payments to municipalities, payments for fuel harvested in the State, payments for in-state resource access, in-state purchases of goods and services, and construction-related jobs and purchases. 11 To analyze the economic value of the in-state benefits provided by each proposal, the Commission retained London Economics International, LLC (LEI). LEI provided an initial report on August 31, 2016 that described its methodology for the analysis and, on November 3, 2016, LEI provided its final report in which the results of its analysis were presented. LEI used the IMPLAN model to estimate the impacts to the Maine economy of the in-state benefit-related items of each proposal. IMPLAN is a static input-output (“I/O”) model of the economy that uses fixed multipliers to determine the economic output associated with factors of production (inputs) such as jobs at a biomass facility in Maine. Using IMPLAN, LEI estimated the direct, indirect and induced economic effects associated with the following features of each proposal: (1) permanent direct jobs; (2) 11 Consideration of economic benefits in this manner is not the traditional role of the Public Utilities Commission’s regulatory authority and was explicitly directed by statute. Order Approving . . . - 10 Docket No. 2016-00084 payments to municipalities; (3) payments for fuel harvested in the State; (4) payments for in-state resource access; (5) in-state purchases of goods and services; and (6) instate construction-related jobs and purchases. This economic value was considered as the in-state benefit associated with each proposal and used in the bid evaluation. In its analysis, LEI used the information provided by the bidders as model for items such as the number of jobs at the facility, fuel consumption, purchases of biomass from Maine, and capital spending. For proposals from plants located in other states, the inputs were limited to biomass purchases sourced from Maine and “other” in-state spending. IMPLAN was used to determine the economic output associated with the applicable inputs, which economic output was used as the in-state benefit for each proposal in the LEI analysis and in the Commission’s evaluation of the proposals. The IMPLAN model uses input-output relationships last refreshed in 2014, the most recent base year. Nonetheless, I/O models are accepted as the standard for this type of near-term changes that will result from changing inputs (e.g., capital, labor, energy, materials) for the production of various outputs. Because IMPLAN is a static model, it cannot be used to project mid-to-long term growth, price elasticities, or changes to the structure of the economy or changes in behavior. It is not appropriate to say, for example, “if 22 jobs are added to the biomass power generation sector, then Maine’s economy will grow by ‘x’ dollars.” It is the reference to growth that makes the statement inaccurate. The correct interpretation of the results would be to say “22 jobs in the biomass generation sector are associated with ‘x’ amount of Output (defined as the value of total production in Maine), or ‘x’ number of total employment in Maine.” In addition, it was not possible to evaluate whether the jobs at the biomass facilities were “permanent” jobs, as stated in the statute, to the extent that “permanent” refers to a time period after the end of the 2-year contract period. As LEI says in its report: the IMPLAN analysis cannot predict whether these impacts are “permanent.” If the contract that the Commission would engage in is a two-year contract, then it is reasonable to expect two years of annual benefits. It may be the case that the two-year contract helps “bridge” economic difficulties and allows a biomass power plant to remain open after the contract period expires. Whether a biomass power plant remains open or an out-of-state buyer continues to purchase fuel from Maine after the contract expires depends on many factors, and is a question outside the scope of the analysis that LEI has been asked to perform. With these qualifications, the Commission concludes that IMPLAN is a reasonable model to use for the purpose of the comparative analysis required to evaluate the proposals. However, the absolute value of the economic benefits as measured by IMPLAN may be less reliable given the limitations of the model described above. Order Approvinq . . . - 11 Docket No. 2016-00084 Finally, it should be emphasized that IMPLAN does not analyze ?lost opportunity costs?, which in this case would include the impacts of spending the Cost Recovery Fund money in another manner, orjust leaving that money in the taxpayers? pockets. In other words, the analysis in this proceeding does not address a basic policy question as to whether the benefit of using $13.4 million to support the biomass industry in the proceeding provides the maximum benefit of that money compared to other possible uses. Further, these issues are an indication that this proceeding is outside of the typical function of the Commission. The Commission does not typically administer taxpayer funds and we only do so now in accordance with the directives of the Act. C. Proposal Evaluation Based on the results of the evaluation of the proposals (summarized in Table 1be ow), the Commission selected the ReEnergy proposal for energy from the facilities in Ashland and Fort Fairfield, Maine and the Stored Solar proposal for energy from the facilities in Jonesboro and West Enfield, Maine. Table 1 [Partially Confidential] Estimated Total Estimated Above Estlmated Net Bidder Facility location?) size mice Expected Total In-State Benefits Market Costs Ill-State Benefits Total per Total per Total per '3 eEnergV( 1) Ashland and 2 SELECTED Fort Fair?eld 40 MW 615,228 $144,339,037 5 234.61 3 7,650,635 3 12.44 $136,688,402 $222.18 PROPOSAL 3 5 Stored Sclar West Erfield and SELECTED Jonesboro 40 MW Fixed $13.40 above LMP 500,000 $135,858,747 3 271.72 6,700,000 13.40 $129,158,747 $258.32 PROPOSAL (Full Capacity) The ReEnergy proposal is for a ?contract for differences? (CFD) at a price of $46.50 per Under the CFD structure, ReEnergy would be paid the difference between the contract price and the applicable wholesale market LMP. The in-state benefits of the proposal include 45 full-time equivalent jobs at the Ashland and Fort Fairfield facilities and capital expenditures of $1,347,757 in the ?rst year and $662,749 in the second year. In addition, ReEnergy provided a commitment to in-state biomass purchases of 624,117 tons annually. The Stored Solar proposal is also a CFD which is structured as a fixed price of $13.40 per which Stored Solar would receive through the contract in addition to the price it would receive in the wholesale market. The in-state benefits of the proposal Order Approving . . . - 12 Docket No. 2016-00084 include annual purchases of 500,000 tons of in-state biomass and 42 full-time equivalent jobs at the Stored Solar facilities. In addition, Stored Solar commits to making $2.5 million in capital expenditures in year one. D. Other Criteria and Considerations i. Competiveness of Solicitation In order to proceed to contract selection in accordance with the Act, the Commission must determine that the solicitation was competitive. Under the Act, if the Commission determines that the solicitation is not competitive, “no bidders may be selected and the commission is not obligated to enter into a contract.” Due to the number of bids received and the diversity and competitiveness of the terms proposed, we find that the solicitation was competitive. ii. Cost Recovery Fund Limitations As described above, the contracts that would maximize overall benefits to Maine, as contemplated by the Act, are those proposed by ReEnergy for its Ashland and Fort Fairfield facilities and by Stored Solar for its West Enfield and Jonesboro facilities. The projected above-market costs over the two year duration of these contracts, with the limitation discussed below on the funds to be received by ReEnergy, is expected to roughly equate to the $13.4 million provided by the Legislature in the Cost Recovery Fund. 12 However, because the actual above-market costs associated with these contracts will depend on a variety of factors, such as changes in the market price for energy, the Commission will monitor the Fund and, as required by the Act, the Commission will suspend one or more of the contracts if it appears likely the Fund would be depleted before the expiration of the two year term. It is also possible that, at the end of the contract terms, there would be a balance remaining in the Fund, in which case the Commission envisions that the balance would be returned to the General Fund. iii. Northern Maine Limitation According to the Act, “No more than 50% of the fund may be awarded to facilities serving the NMISA [Northern Maine Independent System Administrator] region.” The Legislature’s intended meaning of the term “serving” is not readily apparent in this context. However, both of the selected ReEnergy facilities are physically situated in the NMISA region and are contractually committed to provide electricity to load located in that region through May 2017. After that date, when ReEnergy has committed to deliver the energy to the ISO-NE region, as a physical matter, the energy will continue to serve 12 In its proposal, Stored Solar projects the annual output of its combined facilities to be 250,000 MWh per year, which when multiplied by its contract price equals above-market contract payments of $6.7 million over two year. This number added to the $6.7 limit on above-market payments that may be awarded to ReEnergy equals $13.4 million. Order Approving . . . - 13 Docket No. 2016-00084 the NMISA region and provide the associated reliability benefits to the region. For these reasons, the Commission finds that the Ashland and Fort Fairfield facilities are serving the NMISA region for some or all of the contract term within the meaning of the Act and, thus, the selected ReEnergy contract is subject to the fifty percent limitation of the Act. 13 Given the total Cost Recovery Fund amount of $13.4 million, the above-market costs associated with the ReEnergy contract are capped at $6.7 million. E. Cost Recovery Fund Tracking and Mechanics As noted above, the Cost Recovery Fund established by the Act is to be used to pay all above-market costs of the contracts awarded by the Commission. If insufficient funds are available in the Fund to pay the above-market costs, one or both of the contracts may be suspended. Through the contract negotiation process, bidders expressed a concern regarding the predictability of expected contract payments in light of the investments they were intending to make in the facilities over the next two years. Although the Commission does not currently anticipate that either or both of the contracts will have to be suspended, such a concern is not unreasonable given that the amount in the Fund available to pay the above-market costs of the contracts is currently limited to the initial $13.4 million. 14 Thus, the Commission will implement the following protocols for tracking and reporting the balance remaining in the Fund throughout the terms of the contracts. 1. The Commission will provide and post the amounts remaining in the Cost Recovery Fund on the Commission’s website in accordance with the process outlined herein. 2. Within three (3) business days after remitting (or, for the ReEnergy contract, in the event the contract price is less than the market value of the energy, receiving) the monthly payment pursuant to each of its biomass contracts, each T&D utility will provide to the Commission the actual abovemarket costs that resulted from the contract for the month. 3. On or before the last day of the first contract month of any biomass contract, and at the same time that a T&D utility provides the monthly notice as required in paragraph #2 for each month thereafter, each T&D utility will provide to the Commission estimated contract payments and/or above market contract payments for each of its biomass contracts for each of the next two calendar months. To the extent applicable, the estimates will be based on the maximum amount of energy that could be transacted by each contract. To the extent applicable, the contract payments and/or above market contract payments will be 13 No such limitation exists for the Stored Solar facilities, which are both located in ISONE territory. 14 The Commission notes that, given the nature of the contract for differences in the ReEnergy Agreement, money may flow into the Fund if there are months in which the market prices exceed the contract price. Order Approving . . . - 14 Docket No. 2016-00084 estimated using an hourly weighted average of forward prices from http://www.cmegroup.com/clearport.html for product codes U6 (ISO-NE MA Hub DA Peak LMP) and H2 (ISO-NE MA Hub DA Offpeak LMP), adjusted to reflect the LMP at the facility node. The node adjustment factor for each facility will be determined by the Commission Staff and provided to each bidder and T&D utility. 4. The Commission will update the estimated Fund balances based on the actual above-market costs provided by the T&D utilities pursuant to paragraph #2. 5. The Commission will post the estimated balances in the Fund that would be available after the T&D utilities were reimbursed for above-market payments, based on the amounts provided by T&D utilities per paragraph #3. 6. The Commission will post the Fund balance amounts described in paragraphs #4 and #5 on or before the fifth business day of the calendar month following the month in which the reports in paragraphs #2 and #3 are filed. F. Payments to and from T&D utilities and the Fund As the contract counterparties, the T&D utilities are responsible for making monthly payments to Stored Solar and ReEnergy in accordance with the terms of the Agreements. The T&D utilities, in turn, will seek reimbursement from the Fund for the above-market costs, or in the event the contract price is less than the market value of the energy for the ReEnergy contract, will transfer receipts into the Fund. 15 In order to facilitate these payments, the Commission establishes the following process: 1. At the same time that a T&D utility provides the monthly notice to the Commission as required in section F(3) above, each T&D utility will provide an invoice to the Commission specifying the amount of the actual above-market costs (or, in the event the contract price is less than the market value of the energy, the amount received by the T&D utility) that resulted from the contract. The invoice should include enough supporting detail for the Commission to verify the amount that should be paid to the T&D utility from the Fund or received by 15 Although the Act does not explicitly provide for the transfer of contract payments into the Fund, the Act does specifically authorize contracts for differences. In a common contract for differences structure, such as that specified in 35-A M.R.S. § 3210-C (1) (A1), the seller pays to the buyer the positive difference between the market value and the target price and the buyer pays to the seller the negative difference between the market value and the target price. The ReEnergy contract is structured in this manner and may result in the T&D utility receiving a payment from the generator. Thus, the Commission finds that, in specifically authorizing a contract for differences, the Act permits such an arrangement whereby payments received by the T&D utility will be transferred into the Fund Order Approving . . . - 15 Docket No. 2016-00084 the Fund from the T&D utility, including but not limited to a copy of the invoice provided by ReEnergy or Stored Solar to the T&D utility. 2. Within three (3) business days after receipt of the invoice, the Commission shall transfer funds from the Fund to the T&D utility. In the event that the invoice indicates that funds should be transferred into the Fund, within three (3) business days after submitting the invoice, the T&D utility shall transfer funds to the Commission for deposit into the Fund. 3. If, during the ISO-NE Data Reconciliation Process, the amount of energy delivered is determined to be different than the amount upon which the invoice submitted to the Commission by the T&D utility was based, the T&D shall, within ten (10) business days of the issuance of the ISO-NE invoice containing the final resettled quantities, provide a revised invoice reflecting the resettled quantity. The difference in the amount either paid from or received by the Fund will be applied to the next monthly payment following the receipt by the Commission of the revised invoice. G. Contract Performance Issues With the proposals selected, a number of other contract issues must now be addressed related to each contract and the administration of the contracts over the two year term. First, the T&D utility counterparties to each bidder shall be Emera Maine for the ReEnergy contract and Central Maine Power for the Stored Solar contract. This arrangement is appropriate because during the process of bid solicitation and negotiation, CMP has indicated that the structure of the ReEnergy proposal could create accounting difficulties if CMP were to be counterparty to that contract. Emera has indicated no such accounting difficulties. Second, the term of these contracts shall be for a fixed two years as measured by a sequential 24-month period. The Act requires that the contracts be for two year terms, but also requires that contracts be suspended if the Cost Recovery Fund appears likely to be depleted before the two year term expires. A question could be posited as to whether the two year term required by the Act includes or excludes the suspension period. We find that the two year term includes the suspension period because to find otherwise creates the possibility that the contracts could extend into perpetuity, which would be an unreasonable result. Third, the contracts include a number of provisions allowing for adjustments to contract payments if either ReEnergy or Stored Solar does not provide its required instate benefits. These adjustments are in accordance with the directive of the Act that “If the commission finds the in-state benefits are not being achieved, the commission may reduce the contract payment by the percentage difference between the actual in-state benefits achieved and the projected in-state benefits.” Further, the Commission must “establish a process under which a generator of biomass resources verifies on an Order Approving . . . - 16 Docket No. 2016-00084 annual basis that the projected in-state economic benefits are generated during the term of the contract.” In order to comply with these provisions of the Act, the contracts include an attachment that details the required in-state benefits to be provided under each contract. The benefits required under the ReEnergy contract are, in contract year one, 45 in-plant full-time equivalent jobs, 624,111 tons of in-state biomass purchases, and $1,347,757 of capital expenditures and, in contract year two, 45 in-plant full-time equivalent jobs, 624,111 tons of in-state biomass purchases, and $662,749 of capital expenditures. The benefits required under the Stored Solar contract are, in contract year one, 42 in-plant full-time equivalent jobs, 500,000 tons of in-state biomass purchases, and $2,500,000 of capital expenditures and, in contract year two, 42 in-plant full-time equivalent jobs and 500,000 tons of in-state biomass purchases. After the end of each contract year ReEnergy and Stored Solar must provide a report detailing and documentation sufficient to verify the actual in-state benefits it provided in each of the required in-state benefits categories. If the actual in-state benefits are less than the required in-state benefits, the Commission will reduce the contract payments made over the previous year by the percentage difference between the actual and required in-state benefits. In order to ensure that funds are available for any such reduction in contract payments, including under a scenario in which no benefits are provided, the contracts require ReEnergy and Stored Solar to provide financial security in the form of cash or a letter of credit for all contract payments that have not been subjected to the in-state benefits review and adjustment process. Finally, the T&D utilities have requested clarification on the scope of their responsibilities regarding several contractual obligations of the generators that were included to reflect requirements of the Act. Specific provisions of the contracts that are of concern to CMP include requirements that: • the only outages at the facilities are planned and forced outages; • the facilities operate at least at a 50% capacity factor, except for planned and forced outages; • each facility remain a Biomass Resource Facility throughout the contract term; and • the facilities utilize only wood, wood waste or landfill gas for the generation of energy. CMP requests guidance as to what monitoring and enforcement activities are expected of T&D utilities for these biomass contracts. In addition to the those responsibilities outlined in section IV(F) of this Order, the utilities will be expected to perform such responsibilities that are necessary for administration of these contracts or that are conditions precedent to the obligations of the generators under these contracts. We also expect the utilities to provide updates on whether the generators have provided credit support in the amount contemplated by the contracts. The contracts require the generators to maintain credit support in an amount equal to the maximum contract payments to be made under the contract. The generators provide this credit support to the utilities on a quarterly basis. The utilities Order Approving . . . - 17 Docket No. 2016-00084 will be expected to review the provided credit support to ensure that the utilities hold a total credit support amount that accords with the terms of the contracts. On the first business day after each contract year quarter, the utilities must also update the Commission as to whether the generator has provided the appropriate credit support, along with supporting calculations. Although ReEnergy and Stored Solar will be expected to comply with all provisions of the contracts, the utilities are not required to proactively verify generator compliance with those provisions identified by CMP; however, the Commission directs its Staff to work with the T&D utilities to ensure that adequate reporting protocols are in place to ensure that these obligations can be monitored. In addition, if, during the course of business, CMP or Emera have a reason to believe that either Stored Solar or ReEnergy were in breach of any provision of the contract, the particular utility would be expected to inform the Commission and to act in accordance with the contract. Accordingly, the Commission ORDERS 1. The proposed contract associated with the joint proposal of ReEnergy Ashland LLC and ReEnergy Fort Fairfield LLC is approved, subject to changes necessary to accommodate the Part One Order and this Part Two Order, as well as nonsubstantive changes necessary to finalize the contract. 2. The proposed contract associated with the proposal of Stored Solar LLC for energy from 40MW from its West Enfield and Jonesboro facilities is approved, subject to changes necessary to accommodate the Part One Order and this Part Two Order, as well as non-substantive changes necessary to finalize the contract. 3. That the authority to make the changes described in Ordering Paragraph One and Ordering Paragraph Two of this Part Two Order are delegated to the Director of the Electric and Gas Utilities Industries. Dated at Hallowell, Maine, this 25th day of January, 2017. /s/ Harry Lanphear __________________________ Harry Lanphear Administrative Director Order Approving . . . - 18 COMMISSIONERS VOTING FOR: Vannoy McLean Williamson Docket No. 2016-00084 Order Approving . . . - 19 Docket No. 2016-00084 NOTICE OF RIGHTS TO REVIEW OR APPEAL 5 M.R.S.A. § 9061 requires the Public Utilities Commission to give each party to an adjudicatory proceeding written notice of the party's rights to review or appeal of its decision made at the conclusion of the adjudicatory proceeding. The methods of review or appeal of PUC decisions at the conclusion of an adjudicatory proceeding are as follows: 1. Reconsideration of the Commission's Order may be requested under Section 1004 of the Commission's Rules of Practice and Procedure (65-407 C.M.R.110) within 20 days of the date of the Order by filing a petition with the Commission stating the grounds upon which reconsideration is sought. Any petition not granted within 20 days from the date of filing is denied. 2. Appeal of a final decision of the Commission may be taken to the Law Court by filing, within 21 days of the date of the Order, a Notice of Appeal with the Administrative Director of the Commission, pursuant to 35-A M.R.S.A. § 1320(1)-(4) and the Maine Rules of Appellate Procedure. 3. Additional court review of constitutional issues or issues involving the justness or reasonableness of rates may be had by the filing of an appeal with the Law Court, pursuant to 35-A M.R.S.A. § 1320(5). Note: The attachment of this Notice to a document does not indicate the Commission's view that the particular document may be subject to review or appeal. Similarly, the failure of the Commission to attach a copy of this Notice to a document does not indicate the Commission's view that the document is not subject to review or appeal.